Dr Marek Dietl, investment manager in the National Capital Fund speaks about barriers to development of innovative firms and opportunities which co-financing from venture capital funds posit for small and medium-sized enterprises.
Are Polish venture capital funds ready to face the risk related to investing in fresh, innovative projects in such sectors as modern technologies, biotechnologies, IT or renewable energy? Or, perhaps, they still prefer traditional businesses?
If we take a look at the share of innovative firms in the GDP generation or export, it is plain to see that in this respect Poland occupies on of the last positions in Europe. This is mainly because of problems our enterprises face in terms of the access to capital for really innovative ventures.
I see two main obstacles hindering venture capital funds from financing innovative firms. The first barrier is of a purely business nature. From the point of view of a venture capital fund, conducting a due diligence of big and small companies requires application of comparable amount of time and financial resources on the part of investment mangers. Why should we bear the costs of investing in projects at an early stage, rather than conduct transactions on a large scale and, often, in a less risky way?
The latter obstacle is mentality. Firms at an early stage of their development are characterised by the lack of business history, scarce capital resources and a business model of a credibility which is hard to assess. Let’s add to all this still limited awareness of the significance of breakthrough innovations and it is crystal clear why investors prefer more traditional ventures.
Looking at this problem from a wider perspective, we may notice a low capital of public trust in Poland. A company is afraid to reveal the details of its business ideas to a potential investor, while the investors fear that some unknown entrepreneur is trying to take them in. However, the prerequisite for investing in innovations is a mutual trust between market participants.
The data provided by the Polish Association of Capital Investors show that the investment in start-ups account for a symbolic part of the Polish PE/VC market. Are the competitions organised by the National Capital Fund an opportunity to change this situation?
We are trying to set into motion a flywheel of innovative firms financing. We must succeed, because if within five years a significant number of firms able to play a vital role in their niches on a global market are not created, we are doomed to exhaustion of further opportunities for economic growth in Poland. Polish economy is developing mainly due to the fact that we are chasing developed countries. Now it is the right time to think about getting in front of the rich.
I do believe that our competitions shall contribute to establishing Polish firms which, in their niches, will be most competitive in the world. I am talking about niches because according to a research conducted by Prof. Hermann Simonon over two thousand small and medium-sized enterprises which are world leaders in selected niches, the creation of a significant position in a global scale takes about 50 years. These enterprises usually developed organically. We can’t wait that long – I hope that VC funds which the National Capital Fund is going to invest shall boost the development of Polish SMEs.
What benefits may venture capital investments bring about for the economy?
Enterprises which the VC fund invested in generate better sale and export in relation to their assets, pay higher taxes and more often incest in research and development projects. Competitions organised by the National Capital Fund constitute a proper instrument aimed at stirring up the VC investment market also in Poland.
A positive signal for us is also a growing competition on the market of major private equity transactions. This means that some managers from this sector – excellent investment specialists – are now paying more attention to opportunities generated by the NCF.
Interview by Krzysztof Garski, read more (in Polish)
National Capital Fund SA (NCF). The mission of NCF is increasing the capital availability for small and medium-sized enterprises (SMEs) through support to financing venture capital funds investing in innovative Polish small and medium-sized enterprises. The NCF was created on 1 July 2005 pursuant to the Law on the National Capital Fund; the owner of 100% shares is the National Economy Bank (Bank Gospodarstwa Krajowego). By the end of 2011, the NCF shall have about 30 VC funds with total capitalization of over PLN 1,5 billion. The supported funds will invest in over 200 SMEs. The NCF implements, inter alias, subject ‘Improvement in business environment and access to capital for small and medium-sized enterprises’ which is a part of ‘Private sector’ priority within the framework of the Swiss – Polish Co-operation Programme. The value of non-returnable assistance granted for this purpose by the Swiss government amounts to CHF 53 mln.
Dr Marek Dietl worked for international consulting firm Simon-Kucher & Partners, first in the headquarter in Bonn, and then in the Warsaw office. He went through career path from trainee to authorised manager – a position he held for three years. He also has a profound supervisory experience. Presently, he sits on supervisory boards in an energy firm, IT company quoted on the stock exchange and an airport. Prior to that, he was a member of a supervisory board of a trading & manufacturing company, investment fund, leasing firm and bank as well as the board of auditors in an association. He is also involved in social activities and does expertise: he is a mediator in the Conciliatory Court at the Financial Supervision Authority, expert of the Sobieski Institute as well as a collaborator of Economy Department of the Warsaw School of Economics (Szkoła Główna Handlowa) in Warsaw.